1. Serial correlation:

a. measures the relationship between the current return on a security with that of a second security.

b. involves multiple securities within the same industry.

c. indicates a tendency for continuation when the correlation is positive.

d. indicates a tendency toward reversal when the correlation coefficient is zero.

e. supports weak form efficiency when the correlation coefficient is near zero.

2. Which one of these is an example of financially irrational behavior?

a. an investor selling stock to realize a profit

b. increasing the amount you are willing to pay for a stock following a positive announcement

c. buying a mutual fund to benefit from diversification

d. casino gambling

e. a firm issuing new shares when their managers feel the stock is overpriced

3. If the securities market is efficient, an investor need only throw darts at the stock pages to pick securities and be just as well off as they would be with a professionally-developed portfolio.

a. This is true because there would be no significant difference in risk and return.

b. This is true because in an efficient stock market all portfolios earn the market rate of return.

c. This is false because professionals guarantee higher returns given the same level of risk.

d. This is false because investors may not hold a desirable risk-return combination.

e. This is false because the markets are controlled by the institutional investors.

4. Stock market events in 1929, 1987, and 2008 are most apt to be used as examples in support of which one of these theories?

a. blanket theory

b. advanced markets theory

c. value theory

d. bubble theory

e. behavioral theory

5. Arbitrage involves the simultaneous purchase:

a. of one security and the corporate repurchase of another similar security.

b. of two substitute securities with their sales following within the hour.

c. of two or more similar securities.

d. and sale of the same security.

e. and sale of an identical asset in another market.